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Barflex Polyfilms

• Barflex Polyfilms is coming out with an initial public offering (IPO) of 65,69,875 equity shares in a price band Rs 57-60 per equity share.
• The issue will open on January 10, 2025 and will close on January 15, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.70 times of its face value on the lower side and 6.00 times on the higher side.
• Book running lead manager to the issue is Almondz Financial Services.
• Compliance Officer for the issue is Deepshikha Mittal.

Profile of the company

Barflex Polyfilms was incorporated as a private limited company on January 24, 2005, with the business to manufacture flexible packaging material in its first manufacturing unit situated at Industrial Area Barortiwala, Baddi, Distt- Solan, Himachal Pradesh, India (Unit -I). This Unit -I manufactures barrier COEX films, laminates and PVC (poly vinyl chloride) labels. The installed capacity of Unit -I is to manufacture 2400 MT per annum of co-extruded multilayer plastic films and pouches.

The company is engaged in manufacturing of COEX films, laminates and labels. It manufactures flexible packaging material suitable for packaging products in FMCG industry, processed foods, adhesive, engineering, pharmaceutical industry, cosmetics, construction industry and others. Its major customers are known brands in their respective sector as well as in the domestic market. At present, it manufactures 3-layer poly films, 5-layer poly films, laminates, vacuum pouches, 5-layer bulk liners and PVC shrink labels. It is planning to start manufacturing 7-layer films as well, post expansion. This will help the company to become preferred vendor in packaging material, for its customers. 

Proceed is being used for:

• Funding capital expenditure towards purchase of additional plant and machinery out of net proceeds from fresh issue
• General corporate purpose

Industry Overview

The paper and packaging sector in India is growing rapidly and has significant potential for future expansion. The industry was valued at $50.5 billion in 2019 and is anticipated to reach $204.81 billion by 2025, registering a CAGR of 26.7% from 2020 to 2025 and is forecasted to grow by $15.57 billion during 2023-2028, accelerating at a CAGR of 12.69% during the forecast period. The growth in the sector is being driven by a surge in e-commerce, food processing, pharmaceuticals, FMCG, manufacturing industry and healthcare sector. Additionally, numerous government initiatives including 'Make in India' had positive impact on the packaging industry. The paper and packaging industry is currently the fifth largest sector in the Indian economy and has the potential to achieve pricing levels that are about 40% cheaper compared to European regions. India uses paper as a major source of packaging. The paper industry accounts for 5% of global production. Demand for paper continues to rise for the packaging of FMCG products and ready-to-eat food. Packaging-grade paper accounts for 55% of the main types of paper produced domestically in the paper and paperboard industry.

India is emerging as a key exporter of packaging materials in the global market. The export of packaging materials from India grew at a CAGR of 9.9% to $1,119 million in 2021-22 from $844 million in 2018-19. US remains the major export destination for the packaging industry, followed by the UK, the UAE, Netherlands, and Germany. Meanwhile, the increasing use of stand-up pouches is an emerging trend in the market growth. Vendors are coming up with new and innovative packaging solutions to withstand the high competition in the market. Innovative packaging includes stand-up pouches that have gained popularity primarily in the food industry. A stand-up pouch weighs less compared with a glass bottle. The low weight of standup pouches enhances the functionality of portability. Additionally, they are also replacing cans to store processed food.

The Indian packaging sector is diverse and caters to a broad sector of industries and products. The government, through its positive promotion of the Make in India policy, has set the packaging sector to grow rapidly due to companies setting up their manufacturing units in the country and using these domestic facilities as a base to export to other countries. The government has implemented a strategy to lower tax rates for new manufacturing companies in order to turn India into a global manufacturing hub. Furthermore, given the need for domestic firms to compete with MNCs, the government is planning to further level the sector among players by launching various initiatives with the aim of promoting the development of packaging, along with technological advancements.

Pros and strengths

Diversified product range: The company is engaged in the manufacturing of flexible packaging material. It provides a varied range of products catering to the needs of diversified industries like FMCG, processed foods, adhesive, engineering, pharmaceutical, cosmetics, construction industry and others. It offers customized and quality products to its customers, which increases the scope of its customers and its ability to cater to a diversified clientele base.

Presence across diverse industry verticals with relationship with its clients: It has developed and maintained a good relationship with its major customers. The company’s existing relationships help it to get repeat business from its customers. This has helped it to maintain a long-term working relationship with its customers and improve its customer retention strategy. The company’s existing relationship with its clients represents a competitive advantage in gaining new clients and increasing its business. It is engaged in the manufacturing of flexible packaging material suitable for diverse and multifarious applications in FMCG, processed foods, adhesive, engineering, pharmaceutical, cosmetics, construction and other industries.

Widespread market presence: With the help of its capabilities, the company has been able to create a widespread market presence in India, thereby catering to various manufacturers functioning in various industries. The company caters to locations spread across more than 15 States. The business profile of the company is expected to further improve with its increasing geographical presence, while maintaining healthy relationship with its existing clientele.

Risks and concerns

Not entered into long-term agreements with customers: The company does not have any firm long-term supply agreements with its customers and instead relies on short term purchase orders from its customers. Many of the purchase orders specify a price per unit delivery schedule, and the quantities to be delivered. While it has developed relationships with certain of its customers in the normal course of business, there can be no assurance that its customers in the past or its newly acquired customers will continue to place similar orders with it in the future. Further, neither do it has any exclusive agents, dealers, distributors nor has it entered into any agreements with any of the market intermediaries for selling or marketing its products. If there occurs any change in the market conditions, requirements of its customers, or if it fails to identify and understand evolving industry trends, preferences or fail to meet its customers’ demands, it might have a direct impact on its revenue and customer base. The inability to procure new orders on a regular basis or at all may adversely affect its business, revenues, cash flows and operations.

Maximum revenue comes from sale of top 5 products: The company is engaged in manufacturing of 3 ply laminates, 5-layer barrier films, laminate pouches, poly-pouches, BOPP labels/PVC and other products. The company garnered 90.14%, 93.12% and 94.55% of its total revenue from top 5 products in FY24, FY23 and FY22 respectively. However, the composition of these top products is subject to change due to market dynamics, consumer preferences, and its ongoing product innovation efforts. Potential factors such as increased competition, pricing pressures, or fluctuating demand pose risks that could impact future revenue from these key categories. Any adverse developments in the sales performance of its top five products could significantly affect its overall revenue and, consequently, have adverse implications for its business operations, financial performance, and overall market position.

Stiff competition: The market in which it operates is highly competitive on account of both organized and unorganized players. Players in this industry generally compete with each other on key attributes such as technical competence, new products, technology, pricing and timely delivery. Some of its competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive. Moreover, the unorganized sector offers their products at highly competitive prices which may not be matched by it and consequently affect its volume of sales and growth prospects. Growing competition may result in a decline in its market share and may affect its margins which may adversely affect its business operations and its financial condition. 

Outlook

Barflex Polyfilms manufactures COEX films, laminates, and labels. The company produces flexible packaging materials ideal for the FMCG industry, processed foods, adhesives, engineering applications, pharmaceuticals, cosmetics, construction, and others. The company has a diverse range of products for industries such as FMCG, processed foods, adhesives, engineering, pharmaceuticals, cosmetics, and construction. On the concern side, a significant portion of its revenue is generated from sales of its top five products. The loss of customers who purchase these products, or a significant reduction in the production and sales of, or demand for said products for any reason may adversely affect its business, financial condition, results of operations and prospects. Moreover, the company does not have any long-term agreements with its customers. If its customers choose not to source their requirements from it, the company’s business and results of operations may be adversely affected to that extent.

The company is coming out with a maiden IPO of 65,69,875 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 57-60 per equity share. The aggregate size of the offer is around Rs 37.45 crore to Rs 39.42 crore based on lower and upper price band respectively. On performance front, the revenue from operation of the company was increased from Rs 10,917.07 lakh to Rs 11,023.36 lakh. There was a marginal increase in revenue since it is operating at optimum capacity utilization. Moreover, the company’s profit after tax increased from Rs 1013.07 lakh in FY23 to Rs 1623.55 lakh in FY24. This increase of 60.26% was mainly on account of decrease in raw material prices. The total consumption of raw material during FY24 was Rs 7527.83 lakh as against Rs 7876.46 lakh during FY23.

The company has been in the flexible packaging market for the past 19 years. It is currently engaged in manufacturing of 3-layer films, 5-layer films, 5-layer pouches, laminate pouches, BOPP labels, 2 ply laminate film, 3 ply laminate film and 4 ply laminate film and serving a variety of industries including FMCG, adhesive, processed foods, engineering, pharmaceutical and cosmetic, and others. Presently, the company is running at its optimum capacity utilization and with an intent to expand its product portfolio, it plans for expansion. It intends to diversify its product portfolio which could cater to customers across segments, sectors, and geographies. In accordance with this, while it seeks to continue to strengthen its existing product portfolio, it intends to further diversify into products with prospects for increased growth and profitability. It plans to continue to increase offerings in its current business segments as well as diversify into new products by tapping into segments which in the view of its management have growth prospects.